In the comments section, Shopgirl Chicago asked a great question:
"...We have opened up a roth IRA what else should we be doing? (besides depending on our pension??)"
Retirement is a very important question for everybody, no one wants to end up on public assistance or as a burden to friends and family. Every retirement plan has it's positives and negatives, and how long until you retire, what kind of lifestyle you want to live when you retire, and what you're willing to live on now are all factors that play a part. Shopgirl: you already have a pension (as do most of you, social security...which may or may not be around in the future is a pension) which will pay you a certain percentage of your salary based on years of service and income. It's a great idea to start something else as well and a popular choice is a Roth IRA.
First of all, some notes about IRA's. There are a few types of IRA's out there but the two most popular are Roth and traditional. The main differences are tax liability and dispursement rules. Unlike a traditional IRA, Roth IRA contributions are not tax deductible, but the withdrawals are making them a tremendous option to grow your money in a tax free environment (one of the great enemies of retirement are taxes). There are income limits to contributing to a Roth, if you are married and filing jointly your not able to contribute to a Roth if your income is above $169,000 (you can only partially contribute if your income is between $159,000 and $169,000). If you are under the age of 50 (by the way, the magic number to take your money out without penalty is 59.5) you can contribute $5000 a year per person, if you are over 50 you can contribute $6000 a year. If you're married, you can each contribute this amount. Anyone can open and contribute to a traditional IRA (as opposed to the Roth which has the income limits) but you only realize certain tax benefits from a traditional IRA if you are below a certain income level. Another nice benefit of an IRA is that you can take money out to pay for education expenses for you, your spouse, or dependants. This makes them a better option, in my opinion, than the state sponsored education accounts that MUST be used for education or else they incur large penalties.
Other people might be eligible for a 401k (or similar product such as a 403b). Before doing anything else, I would at least be contributing the minimum amount that your company will match. Companies will usually pay a certain percentage out of their own pockets. For instance, if you contribute 25 cents, they will contribute 75 cents so every dollar in your account is 3/4 covered by a business. This benefit is starting to disappear in the current tough economic situation but many companies still offer some sort of match.
If you are paying in to your pension, AND fully contributing to an individual retirement account you are way ahead of 95% of the people out there. If you still have extra money to invest, it might be time to do something more unconventional. Investing in real estate, commodities such as gold or silver, individual stocks, mutual funds or a new product called a ETF might be worth exploring. One thing that's important to remember is that outside of some of the government-recognized retirement funds there aren't a lot of tax advantages out there and you will be paying taxes on the gains you manage to generate during the year.
The simple fact is that most people aren't able to live, pay payroll taxes, pay in to a retirement account at work, fully fund an IRA account, AND still have plenty of extra money to throw around at other investments. It's important to live a life as well and do things you enjoy doing. Just as an example, if I had an extra:
$1,000 to invest right now - I'd take a road trip to somewhere interesting
$10,000 to invest right now - I'd buy individual stocks in a strong company that is currently trading at a historically low level, something like General Electric
$50,000 to invest right now - I'd pay off my car loan and do some remodeling to my house (with interest rates at a very low level, it's not a bad idea to do this now anyway as money is fairly cheap.)
$100,000 to invest right now - This is tough because you're starting to get in to numbers that are life changing for people, but I'd probably go in to several mutual funds both in emerging markets and something that will take advantage of the current economic situation like precious metals or foreign currency.
$1,000,000 to invest right now - I'd take a bunch of friends and family on a great trip to Maui and endow a scholarship at a college.
It's important to balance saving for retirement with living a life that is fulfilling to you.
Excellent question Shopgirl. What ways are other people saving for retirement?